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Squeeze plays

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Apparently there is demand to talk about this, so:

GameStop, AMC and BlackBerry have received hundreds of thousands of mentions across social media since early January and have vaulted into the ranks of the most traded stocks in the U.S. market.

The mammoth gains have forced money managers to dump bets that the stocks would fall, magnifying the rally. Bearish investors who took short positions have lost $23.6 billion this year through the close of trading Wednesday on GameStop alone, according to financial analytics company S3 Partners, including $14.3 billion on Wednesday when the stock price jumped 135%, its largest percentage increase in history, to a record $347.51.

On Wednesday, GameStop shares hit a high of $380, briefly giving the videogame retailer a market value of $26.5 billion—more than that of Delta Air Lines Inc.

[…]

The soaring stock prices of heavily shorted stocks have ensnared some of Wall Street’s best traders. Top-performing hedge fund Melvin Capital Management, which managed $12.5 billion at the start of the year, had lost nearly 30% for the year through Friday due largely to its array of bets against companies including GameStop, said people familiar with the fund.

With losses mounting, Melvin founder Gabe Plotkin orchestrated an emergency deal Monday in which Citadel LLC, its partners and Point72 Asset Management would immediately invest $2.75 billion into Melvin’s fund to help stabilize it. As part of the deal, they got non-controlling revenue shares in Melvin for three years. The move effectively reduced Melvin’s reliance on borrowed money and, therefore, the likelihood of margin calls from Melvin’s prime brokers.

Melvin’s put options against GameStop—bearish contracts that typically profit as stocks fall—expired in mid-January and it was completely out of GameStop Tuesday. “Melvin Capital has repositioned our portfolio over the past few days,” a spokesman said in a written statement. He declined to comment on how much of Melvin’s losses came from GameStop.

This account of these pump-and-presumably-dump operations is good.

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